6 Simple Strategies To Trade the Wolf's Meow

October 25, 2016

Mish's Daily

By Mish Schneider


mdaily20161026Art Installation in Santa Fe, NM

How many of you are as weary as I am of trying to find yet another creative way of saying the same thing each day about the market?

Oh, for those of you new to the Daily: I’m referring to the diversion between the strong and the weak sectors. Also the diversion just among the Modern Family members. And, of course, the relatively tight trading range in the Dow over the last 6 weeks.

Meow Wolf: When we assume we will hear a loud howl from an intimidating wolf’s mouth and instead hear the milquetoast meow of a housecat.

Yet we know that nothing lasts forever. Any catalyst-the election, aggressive military action, a substantial weather event, some unexpected economic data, or whatever else not immediately on the minds of most us-will cause a shift.

Anticipating the shift without knowing definitively when or how that will shift will develop, in which ways can an investor prepare?

Eventually, the wolf will howl either in agony or in ecstasy.

Agony connotes a sharp market selloff. Conversely, ecstasy implies a market melt up.

Anybody who claims to know the fate of the wolf at this point is conjecturing. What we do know for certain is that A fate awaits the wolf thereby all of us as well.

We prepare by following 6 simple strategies.

  1. Any existing positions deep in the money, we have already trimmed and either widened or tightened the trailing stops. The decision is based on overall market conditions.
  1. Greatly reduce market exposure. At this point, weaker positions or those that were deep in the money and sold off are gone. The portfolio’s main position is cash.
  1. Before establishing new swing positions either long or short, we have carefully considered the risk/reward. If we cannot see at least a 2:1 ratio based on technical chart points, we pass.
  1. If so inclined, we day trade to catch one-day momentum.
  1. We exercise extreme patience. For long trades we look at instruments in bullish phases that have corrected to support levels and/or ones in bearish phases that have blown off and look ripe for a rally.
  1. For short trades we look for instruments that have strong reversal patterns after making new highs or bearish phases that have corrected to resistance.

Most importantly, when in doubt don’t. The market ultimately shows us its true colors. When it does, opportunity surfaces abundantly.

S&P 500 (SPY): 214 pivotal 216 resistance 212 support

Russell 2000 (IWM) 120 pivotal with 123 a better place to clear/close above

Dow (DIA) 180 do or die support area and 182.50 resistance to clear

Nasdaq (QQQ) Possible reversal pattern with low volume after making new highs. 117.50 area the 50 DMA support

KRE (Regional Banks) 42.30 the 50 DMA support with a move over 44 inspiring

SMH (Semiconductors 67.80 pivotal with 67 the 50 DMA support

IYT (Transportation) 143.15 the 50 DMA support

IBB (Biotechnology) 265 key weekly moving average

XRT (Retail) Held 42.52. Yet one wonders what will spur this over the 200 DMA

IYR (Real Estate) 78.00 pivotal

GLD (Gold Trust) Reprieve in the dollar boosted this. Now, 120.95 the 200 DMA support to hold

SLV (Silver) Inside day so now must clear 17.00

GDX (Gold Miners) Through 25.10 see 26.00. Under 23.70 not so good

USO (US Oil Fund). 11.50 pivotal. 10.80 major support

TAN (Guggenheim Solar Energy) 19.80-20.05 support to hold

TLT (iShares 20+ Year Treasuries) Could not close above the 200 DMA and still looks like a bear flag forming

UUP (Dollar Bull) Could very well be a reversal top. Will need a close under 25.48 to confirm

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